Work to be done
Automation and New Tasks: How Technology Displaces and Reinstates Labor
Daron Acemoglu & Pascual Restrepo
NBER Working Paper, March 2019
Abstract:
We present a framework for understanding the effects of automation and other types of technological changes on labor demand, and use it to interpret changes in US employment over the recent past. At the center of our framework is the allocation of tasks to capital and labor - the task content of production. Automation, which enables capital to replace labor in tasks it was previously engaged in, shifts the task content of production against labor because of a displacement effect. As a result, automation always reduces the labor share in value added and may reduce labor demand even as it raises productivity. The effects of automation are counterbalanced by the creation of new tasks in which labor has a comparative advantage. The introduction of new tasks changes the task content of production in favor of labor because of a reinstatement effect, and always raises the labor share and labor demand. We show how the role of changes in the task content of production - due to automation and new tasks - can be inferred from industry-level data. Our empirical decomposition suggests that the slower growth of employment over the last three decades is accounted for by an acceleration in the displacement effect, especially in manufacturing, a weaker reinstatement effect, and slower growth of productivity than in previous decades.
Hedonic-Based Labor Supply Substitution and the Ripple Effect of Minimum Wages
Brian Phelan
Journal of Labor Economics, forthcoming
Abstract:
This paper analyzes a new explanation of the "ripple effect" of minimum wages based on how minimum wages affect hedonic compensation. Minimum wage hikes lower compensating differentials at low-skill undesirable jobs because they raise wages at the most-desirable low-skill job, the minimum wage job. This change in hedonic compensation may cause some individuals to optimally leave low-wage undesirable jobs and seek out more-desirable employment. If labor supply does fall at low-wage undesirable jobs, employers would raise wages, consistent with the ripple effect. Empirically, I provide evidence that hedonic-based labor supply substitution is taking place and contributing to the ripple effect.
Labor Market Power
David Berger, Kyle Herkenhoff & Simon Mongey
NBER Working Paper, March 2019
Abstract:
What are the welfare implications of labor market power? We provide an answer to this question in two steps: (1) we develop a tractable quantitative, general equilibrium, oligopsony model of the labor market, (2) we estimate key parameters using within-firm-state, across-market differences in wage and employment responses to state corporate tax changes in U.S. Census data. We validate the model against recent evidence on productivity-wage pass-through, and new measurements of the distribution of local market concentration. The model implies welfare losses from labor market power that range from 2.9 to 8.0 percent of lifetime consumption. However, despite large contemporaneous losses, labor market power has not contributed to the declining labor share. Finally, we show that minimum wages can deliver moderate, and limited, welfare gains by reallocating workers from smaller to larger, more productive firms.
Changing Business Cycles: The Role of Women's Employment
Stefania Albanesi
NBER Working Paper, March 2019
Abstract:
This paper studies the impact of changing trends in female labor supply on productivity, TFP growth and aggregate business cycles. We find that the growth in women's labor supply and relative productivity added substantially to TFP growth from the early 1980s, even if it depressed average labor productivity growth, contributing to the 1970s productivity slowdown. We also show that the lower cyclicality of female hours and their growing share can account for a large fraction of the reduced cyclicality of aggregate hours during the great moderation, as well as the decline in the correlation between average labor productivity and hours. Finally, we show that the discontinued growth in female labor supply starting in the 1990s played a substantial role in the jobless recoveries following the 1990-1991, 2001 and 2007-2009 recessions. Moreover, it depressed aggregate hours, output growth and male wages during the late 1990s and mid 2000s expansions. These results suggest that continued growth in female employment since the early 1990s would have significantly improved economic performance in the United States.
The Ins and Outs of Labor Force Participation
Regis Barnichon
Federal Reserve Working Paper, January 2019
Abstract:
In this note, I decompose LFPR movements into the contributions of the inflows into participation --the Ins-- and the outflows out of participation --the Outs--. Contrary to conventional wisdom, movements in the outflow rate account for most of the variation of the labor force participation rate: the LFPR increases in tight labor markets because fewer workers leave the labor force, not because more nonparticipants enter. The cyclicality of the outflow rate is in turn mechanically driven by a composition effect: in tight labor markets, job seekers find jobs faster and as a result become less likely to leave the labor force.
Digital Abundance and Scarce Genius: Implications for Wages, Interest Rates, and Growth
Seth Benzell & Erik Brynjolfsson
NBER Working Paper, February 2019
Abstract:
Digital versions of labor and capital can be reproduced much more cheaply than their traditional forms. This increases the supply and reduces the marginal cost of both labor and capital. What then, if anything, is becoming scarcer? We posit a third factor, 'genius', that cannot be duplicated by digital technologies. Our approach resolves several macroeconomic puzzles. Over the last several decades, both real median wages and the real interest rate have been stagnant or falling in the United States and the World. Furthermore, shares of income paid to labor and capital (properly measured) have also decreased. And despite dramatic advances in digital technologies, the growth rate of measured output has not increased. No competitive neoclassical two-factor model can reconcile these trends. We show that when increasingly digitized capital and labor are sufficiently complementary to inelastically supplied genius, innovation augmenting either of the first two factors can decrease wages and interest rates in the short and long run. Growth is increasingly constrained by the scarce input, not labor or capital. We discuss microfoundations for genius, with a focus on the increasing importance of superstar labor. We also consider consequences for government policy and scale sustainability.
Local Labor Markets in Canada and the United States
David Albouy et al.
NBER Working Paper, March 2019
Abstract:
We examine local labor markets in the U.S. and Canada from 1990 to 2011 using comparable household and business data. Wage levels and inequality rise with city population in both countries, albeit less in Canada. Neither country saw wage levels converge despite contrasting migration patterns from/to high-wage areas. Local labor demand shifts raise nominal wages similarly, although in Canada they attract immigrant and highly-skilled workers more, while raising housing costs less. Chinese import competition had a weaker negative impact on manufacturing employment in Canada. These results are consistent with Canada's more redistributive transfer system and larger, more-educated immigrant workforce.
The Industry Anatomy of the Transatlantic Productivity Growth Slowdown
Robert Gordon & Hassan Sayed
NBER Working Paper, March 2019
Abstract:
By merging KLEMS data sets and aggregating over the ten largest Western European nations (EU-10), we are able to compare and contrast productivity growth up through 2015 starting from 1950 in the U.S. and from 1972 in the EU-10. Data are provided at the aggregate level, as well as for 16 industry groups within the total economy and 11 manufacturing sub-industries. The analysis focuses on outcomes over four time intervals: 1950-72, 1972-95, 1995-2005, and 2005-15. We interpret the EU-10 performance as catching up to the U.S. in stages, with its rapid growth of 1950-72 representing a delayed adoption of the inventions that propelled U.S. productivity growth in the first half of the 20th century, and the next EU-10 stage for 1972-95 as imitating the U.S. outcome for 1950-72. We show that both the pace of aggregate productivity growth during 1972-95 for the EU-10 as well as its industrial composition matched very closely the growth record of the U.S. in the previous 1950-72 time interval. A striking finding is that for the total economy the "early-to-late" productivity growth slowdown from 1972-95 to 2005-15 in the EU-10 (-1.68 percentage points) was almost identical to the U.S. slowdown from 1950-72 to 2005-15 (-1.67 percentage points). There is a very high EU-U.S. correlation in the magnitude of the early-to-late slowdown across industries. This supports our overall theme that the productivity growth slowdown from the early postwar years to the most recent decade was due to a retardation in technical change that affected the same industries by roughly the same magnitudes on both sides of the Atlantic.
Geographical Variation in Wages of Workers in Low-Wage Service Occupations: A U.S. Metropolitan Area Analysis
Donald Grimes, Penelope Prime & Mary Beth Walker
Economic Development Quarterly, forthcoming
Abstract:
Low-wage, service-providing occupations accounted for almost half of all U.S. net job growth between 2006 and 2016. The authors study the variation in wages of low-wage service employees across U.S. metropolitan statistical areas, using cross-sectional estimations for 2016 for the 10th, 50th, and 90th percentile wage rates. New data are used to examine the impact of different cost-of-living adjustments on model results, arguing that the preferred adjustment separates housing costs from other costs. The main results are that strong labor market conditions positively contribute to real wages in most of the categories; minimum wages contribute positively to the 10th percentile of four occupations with evidence of influencing higher wages in the 50th and 90th percentiles; and using the authors' cost-of-living adjustment and controlling for housing costs, the presence of an educated population did not substantially raise wages in the four low-wage, low-skill occupations.
Consider This: Training, Wages, and the Enforceability of Covenants Not to Compete
Evan Starr
ILR Review, forthcoming
Abstract:
Using data from the Survey of Income and Program Participation, the author examines the effect of noncompete enforceability on employee training and wages. An increase from no enforcement of noncompetes to mean enforceability is associated with a 14% increase in training, which tends to be firm-sponsored and designed to upgrade or teach new skills. In contrast to theoretical expectations, the results show no evidence of a relationship between noncompete enforceability and self-sponsored training. Despite the increases in training, an increase from non-enforcement of noncompetes to mean enforceability is associated with a 4% decrease in hourly wages. Consistent with reduced bargaining power, noncompete enforceability is associated with a reduction in the return to tenure, and less-educated workers experience additional wage losses in the face of increased enforceability relative to more-educated workers. Suggestive evidence indicates that policies that tie the enforceability of noncompetes to the worker receiving additional consideration in exchange for signing a noncompete are associated with higher wages.
Household Innovation, R&D, and New Measures of Intangible Capital
Daniel Sichel & Eric von Hippel
NBER Working Paper, February 2019
Abstract:
Household R&D (or household innovation) is an important source of innovation that has to date been largely overlooked in research related to national accounts. Indeed, it is not currently counted as investment in the literatures on household production and human capital. This paper develops time series estimates of nominal investment, real investment, and real capital stocks for household R&D for product innovations in the United States. (We focus on product innovations because survey data on services innovations in the household sector are not yet available.) In the U.S., we find that household product R&D is significant. Our estimate of real investment in 2017 is $41 billion (2012 dollars). This is about half of what producers spend in R&D to develop new products for consumers - a sizable fraction. Our estimate of the real capital stock of household product R&D in 2017 is $233 billion. We conclude that household R&D is an important feature of household activity and, more generally, of the overall landscape of innovation.